Resource revenue isn’t to be spent; it’s to be saved.

Resource revenue isn’t to be spent; it’s to be saved.

Winston Churchill is supposed to have remarked that democracy is the worst form of government except for all the others. Never has that faint praise for democracy felt more justified than when one contemplates the irresponsible behaviour of both Newfoundland and Nova Scotia with the Atlantic Accord money.

This was the millions of dollars that were to flow from the royalties on the east coast oil and gas. Normally the money would have been Ottawa’s, because the friendly feds would simply have deducted the money from the two provinces’ equalization payment.

After some pretty bare-knuckled negotiations, featuring Danny Williams petulantly hauling the Canadian flag off the Newfoundland legislature, Ottawa agreed to exempt these revenues from the equalization clawback.

I didn’t like the “special deal” – it seemed to me wrong in principle and certain to cause great friction because of the unfair way it singled out two provinces and one natural resource. On the other hand, I was delighted at this recognition of my institute’s long-time argument that natural resource revenues should be treated differently.

But Premiers Williams and Macdonald are losing sight of the distinction, and storing up big trouble for the future.

Natural resource revenues are not like income or sales taxes. They, and most other revenues, are renewable because they flow from the endlessly renewed efforts and activities of our people.

But natural resource revenues come from the sale of a limited resource. When the oil and gas are gone, they are gone. And the finds off our shores have been limited, to say the least.

So when we sell these resources, it is a one-time deal.

God is not going to put new oil and gas off our coasts when we deplete the current resource. Today’s people are merely the steward of those resources. We must manage them in the interests of all present and future Nova Scotians and Newfoundlanders. We therefore have a moral obligation not to treat this money like some windfall, to be blown on fancy cars and new clothes.

Nova Scotia’s last premier, John Hamm, courageously showed the way. He took the $830-million that the province received as an advance on the royalties, and put it immediately on the province’s crippling $12-billion debt.

That was exactly the right thing to do. Debt is only deferred taxes, so a huge debt is a big disincentive to business to come to the province and invest. Debt that large consumes huge amounts of interest, meaning that many of the taxes we collect cannot be used to pay for needed public services, but go to bondholders in Toronto and New York. That deepens our dependence on taxpayers in the rest of the country, on whom we rely to finance the large transfers we receive.

There is nothing more logically and morally justified than to use these special revenues to pay off debt. Not only do we reduce the burden on future taxpayers, but we also free up money that was going to pay interest on the debt.

That is the real fiscal dividend from such financial virtue. Servicing $1-billion worth of debt costs our provinces about $80-million a year, year after year. Pay off $1-billion in debt and that interest money is now available to sustain new spending or reduce taxes reliably, every year. Reduce debt by a billion dollars and over the next 20 years you could spend a further $1.6-billion on public services without deficits or higher taxes.

But for every virtue there is a corresponding vice. And both Newfoundland and Nova Scotia have taken the vicious course in recent years in their use of the Atlantic Accord payments.

Take the election-bound Nova Scotia Conservatives. The estimated payment to the province from the offshore this year and last adds up to about $400-million. Virtually none of it is to be put against the debt. Instead it is going to support program spending.

But the vast bulk of program spending is salaries for teachers and park wardens and road crews and nurses and all the other employees whom we need to provide services.

Program spending is not one time spending. Those employees have to be paid year after year. They have to have offices, heat, light, telephones, pensions. If you acquire recurrent obligations on the basis of one-time money, an inevitable day of reckoning comes. The natural resource is exhausted, you still have the huge debt, plus you have a lot of public servants you can’t pay and a lot of people reliant on public services you can no longer afford. A child with a calculator can figure this out, but not, apparently, our provincial governments surrounded by professional public finance managers.

One and a half cheers for democracy.

Brian Lee Crowley is the President of the Atlantic Institute for Market Studies, a public policy think tank based in Halifax. E-mail – brianleecrowley@aims.ca.